25000 lump sum to invest over the short term(i.e. about 6 years)

donmaico

My wife is set to retire in a few weeks time and will receive lump sums from two pension providers totalling £25k .As we have other investments inc three cash ISAs, two low risk share ISA's a Santander 1l2l3 joint account(not ISA) and she has a Nationwide acc into which all her moneys get paid into ,our aim is to build capital sum of about £150000 from which we can derive an income at the end of that period.

We each contribute £1500 pa to the share ISAs in effect ,leaving an allowance of £13740 each , but we thought it might be better to open another 1l2l3 account paying 3% ,invest the £20k and put the remainder into a cash ISA.Between us both we should be able to service the account to the required 500pm and pay a few DDs from it.
Two of our current cash iSAs have a fixed term and one is set to mature of the 1st of May so we need to transfer the funds there to another .Santander are offering a two year fixed (also called 123) at 1.35% so that would be an easy option.

Would those be sensible options or could we do better? Thanks

LXdaddy

Currently Cash ISA rates are easily beaten by the interest paying Current accounts. You can easily get 5%, 4% or 3% and although these are taxable it beats what is on offer from cash ISAs.


Take a look at some of the threads on this board. Maybe start with the 5% savings loophole thread. Or the "What is the Highest Interest Rate / Cashback / Rewards You Can Get?" thread


And check http://www.bankaccountsavings.co.uk/ which will give you an idea what you can do. Last time I looked this did not include the latest 5% offering from Nationwide. But has more than enough to get you thinking.

xylophone

,our aim is to build capital sum of about £150000 from which we can derive an income at the end of that period.

At the end of what period?

redux

You might consider a larger amount towards the shares ISAs, as you won't necessarily need it all out at the end of the 6 years anyway.

But if it is to be cash then I agree with the post above. I'd even move the cash out of the existing cash ISAs once they've matured.

donmaico

LXdaddy wrote: »

Currently Cash ISA rates are easily beaten by the interest paying Current accounts. You can easily get 5%, 4% or 3% and although these are taxable it beats what is on offer from cash ISAs.


Take a look at some of the threads on this board. Maybe start with the 5% savings loophole thread. Or the "What is the Highest Interest Rate / Cashback / Rewards You Can Get?" thread


And check http://www.bankaccountsavings.co.uk/ which will give you an idea what you can do. Last time I looked this did not include the latest 5% offering from Nationwide. But has more than enough to get you thinking.

The 4-5% options seems to be for very limited amounts and in some cases require quite high regular payments into them which is why I mentioned the Santander 123 plus a 1.35% ISA for the remainder.
It also came up in the calculator together with TSB classic £500 pm , £2000 max.

bowlhead99

You ask if you can do better and obviously one of the ways to do it better is to get the best rates available on anything that you want to keep as cash, as mentioned by the poster above.

But you say your goal is to have £150k which you can use to produce an income. Presumably if you want this income to keep going for thirty years and not be fiercely eroded by inflation (at 3% inflation, £150k now is only worth £85k in real terms after two decades and will produce a vastly reduced income), then you are going to have to invest the money in something that grows while allowing you to draw an income from it.

Once you realise that over the long term the money must be *invested* to give it the ability to grow or outpace inflation, then what you are presumably looking for is *investments* rather than rainy day *savings*. And given that the value of investments can go up and down over time, it seems like you're wasting an opportunity if you merely "save" for six years to build a capital sum, and only _then_ start to invest the proceeds, rather than starting to invest your capital now as part of the building process.

Which it is why it seems strange to me that you say that out of a £15k annual ISA allowance you are each only going to contribute about 10% (£1500) to low risk investments leaving 90% to put as cash somewhere.

I agree that the Santander 123 current account with its pay-in requirements and jumping through a few hoops is better than the rates on any cash ISA. But 3% put in a risk free bank account is not going to give you a sustainable inflation protected income, over the long term, is it. So I would be investing 50-90% and saving 10-50% rather than the other way around.

Obviously we all have our own attitude to investment risk and I'm not suggesting that the 90% needs to be invested in the riskiest things you can find.

As a side note, you mention wife is going to take a couple of lump sums soon which she doesn't know what to do with. Is it an option to not take one of those sums yet and draw a larger amount later instead?

donmaico

xylophone wrote: »

At the end of what period?

6 year savings period which ties in to the moment my wife will receive her state pension. Although she is "retiring" shortly she will continue to work one day a week whilst receiving an annuity she is the process of buying plus a local government pension.

LXdaddy

donmaico wrote: »

The 4-5% options seems to be for very limited amounts and in some cases require quite high regular payments into them which is why I mentioned the Santander 123 plus a 1.35% ISA for the remainder.
It also came up in the calculator together with TSB classic £500 pm , £2000 max.

You have a choice - a few accounts with interest rates of 6%, 5%, 4%, 3% or a small number of accounts with interest rates of 3%, 1.35% or even 0%.


If you want more interest you need to open a few accounts and do some setup of direct debits and meet funding requirements.


You don't need new money to meet the funding requirements because the required deposit doesn't need to stay in the account it just has to visit. There are also ways to generate as many direct debits as you need.


But you have a choice more interest or more simplicity.

donmaico

bowlhead99 wrote: »

You ask if you can do better and obviously one of the ways to do it better is to get the best rates available on anything that you want to keep as cash, as mentioned by the poster above.

But you say your goal is to have £150k which you can use to produce an income. Presumably if you want this income to keep going for thirty years and not be fiercely eroded by inflation (at 3% inflation, £150k now is only worth £85k in real terms after two decades and will produce a vastly reduced income), then you are going to have to invest the money in something that grows while allowing you to draw an income from it.

Once you realise that over the long term the money must be *invested* to give it the ability to grow or outpace inflation, then what you are presumably looking for is *investments* rather than rainy day *savings*. And given that the value of investments can go up and down over time, it seems like you're wasting an opportunity if you merely "save" for six years to build a capital sum, and only _then_ start to invest the proceeds, rather than starting to invest your capital now as part of the building process.

Which it is why it seems strange to me that you say that out of a £15k annual ISA allowance you are each only going to contribute about 10% (£1500) to low risk investments leaving 90% to put as cash somewhere.

I agree that the Santander 123 current account with its pay-in requirements and jumping through a few hoops is better than the rates on any cash ISA. But 3% put in a risk free bank account is not going to give you a sustainable inflation protected income, over the long term, is it. So I would be investing 50-90% and saving 10-50% rather than the other way around.

Obviously we all have our own attitude to investment risk and I'm not suggesting that the 90% needs to be invested in the riskiest things you can find.

As a side note, you mention wife is going to take a couple of lump sums soon which she doesn't know what to do with. Is it an option to not take one of those sums yet and draw a larger amount later instead?

I guess we are both rather risk averse. Having, in the past, lost money with lump sum share Isa investments we are apprehensive about doing the same.Having said that we are both investing £1500 ea per annum in a Fundsnetwork and Skandia ISAs which are spread to lower the risk.Thats not to say we couldnt increase the amount we pay in each year and thats something we might well consider .The lump sums could be used to do that, but we would have to have faith and given that there are almost daily warnings of another crisis , we are not exactly filled with confidence.
So far the two Share ISA in the space of 15 months, are both showing a loss albeit not by much

bowlhead99

Generally you would expect share-based investments to do well over the long term but in the short term the prices could move anywhere. Some gain or some paper loss in 15 months is basically just "noise" when retiring in your early 60s and potentially having the prospect of spending the last of your pounds when you're in your early 90s or 100s. If anything, it tells you it's a little cheaper to buy those same investments today than it was over the average of the last 15 months. So perhaps you should buy more, if things are on sale.

Whether the investments are up or down depends on what exactly the funds invest in, for example since the ends of last year, some types of company shares are down a bit, some down a bit more, and government bonds are up a bit, generally. So it is about having a balance of different types of holdings if you want to end up with a sustainable pot of assets to draw upon, rather than just cash or just bonds or just UK shares or just international shares or whatever.

How did you lose money with your ISA investments before? Did you just wait until they were down in value from what you paid, and then sell out at the bottom? Do you know what they would have been worth today if you had kept them and potentially kept adding to therm at the low values? Generally the trick is to just keep them and accept that the income from them might go down from time to time before eventually recovering and growing again.

Still, it's not for me to tell you that you're doing it wrong, we simply have different attitudes and there is more than one way to skin a cat. But if your wife has 4 days a week "free" which she used to spend on her day job, that's plenty of time to learn about investment allocations and the maths of compound investments returns versus bank account returns.

redux

donmaico wrote: »

The 4-5% options seems to be for very limited amounts and in some cases require quite high regular payments into them which is why I mentioned the Santander 123 plus a 1.35% ISA for the remainder.
It also came up in the calculator together with TSB classic £500 pm , £2000 max.

Yes, but you can easily shunt money around between them each month, leaving the balances roughly the same.

And some also have monthly saver accounts paying a decent rate.